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Would a War Improve the Economy?

By November 30, 2008

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In Are Wars Good for the Economy?:
One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression. This faulty belief stems from a misunderstanding of the economic way of thinking.
But not everyone shares this view. Reader D.A. gives his view in - Might War Be Good for the Economy.

I would love to get your view - please leave a comment!

Comments

November 30, 2008 at 11:10 pm
(1) Matt says:

Wars are not good for the economy, or people. Government increases spending during a war. This money goes to buying munitions, transporting soldiers, etc. None of this money goes back into the economy. Most of this money is borrowed (paid for w/ bonds etc) that must be paid back at some point. Also, able-bodied citizens are lost during the war, also not good for productivity.

The bottom line (in my opinion) is war is not good for the economy. It is only good for temporarily increasing nationalism as everyone rallies behind a cause.

December 1, 2008 at 8:41 am
(2) Arthur James says:

Keynes devoted immense effort to showing how economic means (such as internationall coordinated Keynesian policies combined internatonal economic instittuions and free trade) could PREVENT war – see Donald Markwell’s book “John Maynard Keynes: Economic Paths to War and Peace” from Oxford, 2006.

December 1, 2008 at 1:45 pm
(3) Lord says:

Wars are tragic and consume resources that could otherwise be used productively. Yet, in the midst of destruction are also the seeds of creation. As survival becomes paramount and extreme efforts are undertaken to succeed, vast investments in technological progress are made that have lasting contributions beyond war. Economies that may be overburdened by maldistribution, stagnation, and social rigidities may give way to more productive progressive advancement. War is destructive and should be avoided if possible, but sometimes the alternative is worse.

December 1, 2008 at 9:29 pm
(4) Ed says:

DA writes “Never has war led to depression” I guess that was until now? What planet is this person living on? So is the argument that if not for the two wars we have been fighting for the last six or seven years that the entire world economy would have completely collapsed? War saved us? Give me a break.

December 4, 2008 at 3:13 pm
(5) Brett says:

I guess a war feeds the arms manufacturers, food producers and segments of industry, like making tanks, jeeps and planes. And the rebuilding feeds construction companies and the like. Furthermore, after a war, the labour pool is depleted, so in theory, it helps drive wages up. However, it diverts finite resources, increasing shortages in the future.

So, in the short and middle term, yes, and in the long term, no. How’s that?

December 6, 2008 at 5:30 pm
(6) Gordon says:

The argument of “The Broken Window Fallacy” breaks down because it rests on the assumption that the $250 will be spent on something else if not to replace the window. In fact the merchant may keep that $250 stashed under his mattress if the window is not broken – that is, if necessity does not require him to spend it.

In our present economic situation, cash is king, because it is about the only asset not losing value. Accordingly, people are hoarding cash, and the economy is stuck. I agree that a war might actually get the economy moving again – but surely that’s about the worst way to do it!

We are currently facing a much worse problem than the threat of Islamic terrorism. Climate change is a huge threat to our future, which we need to face head-on. It is a challenge which cries out for money to be spent, for people and nations to mobilize in a common purpose. It’s a golden opportunity to revitalize our economy through constructive rather than destructive activity.

December 13, 2008 at 1:09 pm
(7) Wil Bus says:

I think you are quite confused about life.
No economy without people.
Economic is first about people and what they regard precious.
The remark at the end of your story; “I love to hear reactions” is the finger point on the essence; ie love
I love my life and that of others.
Economy is just a – word – that humans have invented.
And humans want to live in good shape with their families.
All wars are started with untruth and deceiving people.
War means lies, killing and misery everywhere .
In a war maybe you or your family members will be killed, tortured or wounded.
Those who say that economy after a war is generally in good shape and forsake al the human misery is so blind.
It is sear expression of a lack of intelligence, to say the least.
After all history in general is His – Storie – the so called good conqueror.
If history shows that 1000 times people have gone a stupid way into wars doesn’t mean that there have been maybe 10,000 times people that have gone a another better way, does it?
Those better ways have maybe not been so remarkably recorded but have lead human society to a better level.
Hope you will change your opinion – to bring economy in good shape.
There are enough good, creative and intelligent folks to bring our economy back on a good trail. A free market means good regulations and we have to work on that.
And if others do mischief than we have to be more alert and do better.
all the best
Wil

December 14, 2008 at 2:03 pm
(8) John Fitzgerald says:

It can not be said enough that correlation does not mean causation and anecdotal evidence proves nothing. Even more so, a small sample doesn’t provide any reliable information. In the most basic statistical analysis, with only one causal factor, careful laboratory control on all managable variables, and absolute randomness to cancel out the small and uncontrolled factors, the sample size need to be about 30 in order to get a reasonable assurance of correlation. So, how many wars in our sample and how many variables are controlled for to conclude that war brings prosperity?

Robert Higgs, in the Journal of Applied Economics provides an indepth examination of the measures of “war prosperity” in an article “Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s”. His major point is “Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperity” prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929″

My prefered image is comes from the movies about WWII. As I recal, nylon stockings were a rare commodity. Really, if nylon stockings are a rare commodity, how can one conclude that prosperity abounded?

One might suppose that the “prosperity” was evident after the war. But so many other completely coincidental factors account for this prosperity.

I remain deeply suspicious of the many ideas that seem to have started with WWII. The concept that the CPI is exponential fails misserably when a solid and detailed analysis is done. The idea of a baby boom resulting from WWII also fails when the entire data is taken into account.

If anything, The Great Depression and it’s causal factors along with WWI and WWII interupted economic and population growth which simply rebounded to natural levels after it all ended. Just as well, the CPI and the GDP remain illusionary measures of economic growth, overwelmed by underlying factors that have nothing to do with prosperity. And, while one might suppose that WWII produced wonders like antibiotics, this would presupose that we would not have come up with them without a war.

December 18, 2008 at 7:12 pm
(9) Steve says:

Even if it were a good thing for the economy, I suggest we skip it.

December 29, 2008 at 10:42 pm
(10) DRD says:

In general war is bad for an economy. I think the original article makes a lot of sense.

And, by the way, even if that $250 dollars was just put into a mattress, that still leaves the shop owner better off: in a world where his window is not broken, he has the window and 250 dollars; in the other world, he has just a window.

In a given case, war may be good for a country’s economy. For example, if you have to fight a war to survive, then the war (if you win) is probably good for your economy. If you are fighting a war so that you can go in and take its resources and enslave its people (as european contries did in the 19th century), then the war is probably good for the economy.

But just based on the “war increases government spending” argument, war is not good for the economy.

January 22, 2009 at 1:22 pm
(11) Rob says:

The bottom line is that spending, predominately by the government, is what will pull a country out of a recession. Going on this logic, whether the government spends on a war or building new roads, the result is the same – a stimulated economy.

A government should consider how much of the extra spending will stay within the country and go for the option with the least imports involved.

In America’s case, being the more closed economy that it is, a considerable proportion of the spending will remain in the country – and the government expenditure will create income time and time over.

This is just a very simple take on it, I realise. Being an econ student in college – it’s all part of learning for me.

February 5, 2009 at 11:16 pm
(12) Ru says:

I agree war isnt good for the economy due to a number of reasons however I’ve got a question and I hope someone answers it. Sri Lanka’s civil war began in 1983 and is among the world’s longest running and bloodiest conflicts. Repetitive attempts by the government for a peace process with the rebels have proven all but uncomplicated and the government has now decided to go to war despite its dreadful effect on human welfare and broad growth and development. What I want to know is whether increased spending on defence in a situation where there is an immense security threat to innocent civilians is justified.

February 10, 2009 at 2:09 am
(13) yk says:

War leads to the loss of innocent lives, emotionally and psychological scarring. Money is now needed to help the population with basic human survival; building refugee camps, re-establing businesses, re-building schools, re-building hospitals, pensions and medical aid for disabled soldiers and civilians. Now an entire nation needs to be rebuilt both physically and emotionally. If it had’nt been for the war in the first place, none of this would be required. The money could have been spent in “advancing mankind” projects. Gaza City now needs billion dollars just to rebuild it. The money coming in as aid could have been used to improve the econonomy which was already in shambles before the war and now will remain so for many years to come.

February 10, 2009 at 4:20 pm
(14) John Cauthen says:

The reason for Depressions is money goes from poor people to rich people until the poor people can’t afford to buy the rich people’s goods.

Today poor people can’t afford to pay the mortgages for their houses, so the stock market crashes and the rich people lose a lot of money. The only reason is because the poor people are too poor.

Before the Great Depression, robber baron industrialists gave people low paying factory jobs. When WWII came along, the wealthy gave the poor fairly good jobs fighting the war, with food, clothing, airplanes, tanks: all they needed. The wealthy lost money, the poor got more, and the proper balance was restored.

Today, to avoid the coming Depression, if we simply increased hourly wages for menial jobs by $4, that would have the same effect as hiring people to fight a war. The rich would lose money, the poor would gain money, and the balance would be restored.

(If there are 72 million hourly wage earners. Their hourly wages are increased $4. That’s 300 million dollars an hour in stimulus targeted precisely where it would be immediately spent. That’s 12 billion a week and 1.1 trillion a year, which is exactly what is needed to get us out.)

And that is about the same as what happened in WWII.

The government can’t really create money, but the government has the power to compel corporations like grocery store chains to pay their menial workers $4 more per hour, a radical move that would be supported by everyone but the people who have been in power.

And we would be out of our economic problems.

If they were compelled for four years, what would follow is 1950‘s and 60’s style prosperity just like what followed WWII. Since they fought in WWII, workers were given more respect. And if we raised wages by $4 for four years, and menial workers bought houses and became middle class, menial wages would not go back down for a long while.

February 10, 2009 at 4:27 pm
(15) John Cauthen says:

It’s not 1.1 trillion a year, it’s 600 billion a year; still precisely what is needed to get us out.

Amazing, looking at that we couldn’t raise wages by any less than $4 an hour.

March 9, 2009 at 1:56 am
(16) Trevor Overby says:

I agree, just look to the past if you have any doubts. Look at Germany after the first world war they were in their worst depression to date then Hitler came along organized the people and behold wwII but this was a mire smoke screen to their real problems, because after they hit another depression until the 80s. For war to be beneficial you have to be on the right side sort of speak. America is a great example they used war to their advantage and stayed out of it not spending their own money, but investing it in the loosest of terms. America loaned weapons ammunition equipment in return for interest. Also don’t forget about those war bonds, this is like free money to the government since they are not spending tax payers money they can spend it else were like good politicians do. Just think of it like a 40% increase on your taxes, now this only applies if the war is big enough like a world war.

Now I believe the Iraq war is a failure at long term economic resuscitation, its more similar to WWII for Germany it provided an economic boost, but this is also because of Bushes sicotic spending into the American markets, but we can’t forget that this was allowed because of 9/11 and the pending there after. Also dont forget about bushes outsourcing for vehicle repair and security, but that is a hole other ball game. (just Google it youll find some interesting shit)

So I do believe war greatly influences the world economy, but I believe they should be classified into “good and bad” wars as pertaining to economy

July 3, 2009 at 4:39 pm
(17) Kunal Gilani says:

Nice articles.. I simply conclude:

Wars are Good for the economy if people are investing in long-term savings. The war taxes people, thus less savings, thus more spending of that money (that otherwise would be of no value to the economy)

Wars are ALSO good for the economy if blasting up a nation costs pennies, but restoration is a right you reserve and that will pour money into your economy (by forcing them out of thier natural resources)

But preperation of War is a total waste of economy, even more if its never put onto wheels.

Sums up practically everything US has been doing before Obama ;)

September 2, 2009 at 2:16 am
(18) Mitch says:

The biggest problem I have with the Broken Window Fallacy is this; would the shopkeeper have actually spent the money on new golf clubs or a new suit or other areas, or was it that crisis which demanded economic activity, and thus being beneficial? Wars, I believe, are exactly the same; they force the community to spend in pursuit of a common interest which would explain why they are helpful in breaking depression/recessions.

January 2, 2010 at 1:53 am
(19) Leo Eisenstein says:

One aspect of the Broken Window Fallacy that deserves further consideration is the crowd. The people in the crowd do not have Economics PhD’s. Upon seeing the broken window, they conclude that the window-breaker’s deed was good for the economy. This is what it seems like to them; maybe, as a result, they themselves will go out and break windows as good-faith attempts at economic stimulation.

Then again, maybe they won’t. But the point is that so much of economics—in particular, trying to figure out the invisible losers in the broken window fallacy, such as what a person would have bought—is about psychology, and how a state of mind (say, confidence) will inform people’s decisions.

In this way, the illusion of good economy is itself a powerful economic tool. Maybe it is true that war doesn’t actually boost the economy. But maybe it’s also true that the myth that war boosts the economy does in fact boost the economy.

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